How write-offs differ from credit adjustments

This article applies to Aiwyn Practice. The Accounts Receivable transactions ledger is available only to firms on Aiwyn Practice.

This article answers what separates a write-off from a credit adjustment on a sent invoice, what each one changes, and how your firm chooses between them.

Both lower what the client owes, but they record different facts

You can't edit a sent invoice. When a client should pay less than an invoice says, you record a separate transaction in Accounts Receivable, and the invoice stays as it was sent. See How to change a sent invoice.

A write-off and a credit adjustment are two of those transactions, and both are credits.

Each one's amount shows in the Credit Amount column of the Transactions list. Each reduces the client's balance once you apply it to an invoice in the Allocation section. Neither records any cash. Once applied, either one lowers the invoice's Outstanding balance. If allocations meet or exceed the invoice amount, the invoice shows Paid, even though no cash was collected; its underlying stored status remains Posted. Aging reports use the remaining outstanding balance, so an invoice fully cleared by an applied write-off or credit adjustment drops out of aging. An unallocated credit doesn't reduce the invoice or its aging balance.

The difference is what the transaction says about the fee.

Within Aiwyn Practice, both are mechanically the same kind of credit, labelled with the type you chose. The label doesn't change how the credit is saved, allocated, or reflected in the invoice balance, and neither type moves realization.

A write-off records a fee your firm earned and won't collect

Use a write-off when the invoice was correct but the money isn't coming, and your firm has approved removing the balance. No cash receipt is recorded. The balance simply stops being owed.

Because the fee was valid, a write-off is a statement about collection, not about the work. That's why its Note matters. The note is your firm's record of the decision, so it should give the reason and, where relevant, the person who approved it. Aiwyn doesn't require a note or enforce an approval workflow for a write-off, so your firm's own process determines what to record.

A credit adjustment records an amount the client never owed

Use a credit adjustment when the invoice asked for too much, such as after a billing error, or when your firm decides to give a courtesy discount. The client either didn't owe that amount in the first place or has been forgiven part of it.

A credit adjustment doesn't have to be applied straight away. You can leave it on the client's account and apply it to an invoice later. Until you do, it counts toward the Unallocated badge and doesn't reduce any invoice. See How allocation determines a client's true outstanding balance.

The type you choose tells anyone reading the ledger later whether the fee was valid

Accounts Receivable keeps every transaction, so the type and the note are how someone reviewing the account later understands what happened. A write-off tells them a valid fee was lost. A credit adjustment tells them the invoice was wrong or discounted.

Neither a write-off nor a credit adjustment changes realization in Aiwyn. Both act on Accounts Receivable after billing rather than changing the realization recorded during billing. For how realization is worked out, see How realization is calculated and Billing performance report reference.

What the client sees depends on how the credit is applied, not on its type

A client's balance in the payment portal reflects how payments and credits are allocated. A credit applied to the wrong transaction can leave the portal showing a balance even when the client's account looks settled in Accounts Receivable. Clients can see and use available credits in the client portal, and credits appear in statement emails. They don't appear in invoice emails.

Writing off an invoice balance is different from writing off unbilled work

A write-off in Accounts Receivable happens after billing, against a sent invoice. A WIP write-off happens before billing and removes work that will never be invoiced. They're different actions. See Write down or write off unbilled work and How work enters and leaves WIP.

A debit memo is the opposite of both, and the pair also corrects mistakes

A debit memo adds a charge to a client's account outside the normal invoicing workflow. Its amount shows in the Debit Amount column.

Because you can't delete a transaction, a credit adjustment or debit memo is also one way to offset an entry recorded in error. That means a credit adjustment can mean two things: a real credit to the client, or a bookkeeping correction. Only the Note tells them apart, so say which it is. See Why AR transactions are corrected, not deleted.

The right choice depends on whether the invoice was right

• The invoice was correct, and your firm won't collect the balance: record a write-off.
• The invoice asked for too much, or your firm is giving a discount: record a credit adjustment.
• The client owes more than the invoice says: record a debit memo.
• The invoice shouldn't exist at all: see How to change a sent invoice.

Before you write off a balance, check that the client hasn't already paid. An invoice can look unpaid when a payment hasn't been recorded or applied. See Clear an invoice that still shows Overdue after the client paid.

For the steps to record each transaction, see Record adjustments, memos and write-offs.

Related

• Record adjustments, memos and write-offs
• Why AR transactions are corrected, not deleted
• How to change a sent invoice
• Adjust a sent invoice balance
• Invoice correction transaction reference
• Transactions list reference
• How allocation determines a client's true outstanding balance
• Clear an invoice that still shows Overdue after the client paid
• Write down or write off unbilled work
• How work enters and leaves WIP
• How realization is calculated
• Billing performance report reference